Martha Stewart Defense Rests; Deliberations to Start Wednesday

NEW YORK – Lawyers for Martha Stewart (search) presented a defense of less than an hour Wednesday, calling a single witness to raise questions about what the homemaking icon was asked in her first interview with investigators.

U.S. District Judge Miriam Goldman Cedarbaum scheduled closing arguments in the trial for Monday and Tuesday and said the jury would begin its deliberations Wednesday.

Steven Pearl, a lawyer, testified about notes he took during the interview on Feb. 4, 2002 — a session in which the government claims Stewart told a series of lies about the day she sold ImClone Systems (IMCL) stock.

One accusation is that Stewart falsely claimed she did not know whether there was a record that stockbroker Peter Bacanovic (search) had left her a message on Dec. 27, 2001, the day she sold.

But Pearl's scribbled notes show Stewart may have been responding instead to a question about what time Bacanovic called her that day.

Under cross-examination by prosecutors, Pearl admitted that his notes were incomplete and that there may have been a question about the message log he did not write down.

Referring to his notes and a memo he prepared after the interview, Pearl said: "Neither one is a verbatim transcript."

There was no court reporter or tape recorder in the interview, and the government relied on the notes of an FBI agent who was present to charge Stewart with lying.

Lawyers for Bacanovic also rested their case Wednesday morning. They called five witnesses over three days.

The government claims Stewart sold her 3,928 ImClone shares because she was tipped that ImClone CEO Sam Waksal (search) was frantically trying to sell his own. A negative report related to an ImClone cancer drug soon sent the stock tumbling.

Stewart and Bacanovic claim they had agreed before Stewart sold to get rid of the shares if ImClone's stock price fell below $60. Prosecutors say that was simply a cover story.

Jurors were excused for the week after prosecutors introduced one final piece of evidence — a portion of Bacanovic's interview with the Securities and Exchange Commission.

On the audiotape, jurors heard Bacanovic say he never discussed the $60 arrangement with Heidi DeLuca, a Stewart business manager.

"I never get into that level of detail with Heidi," Bacanovic says on the tape.

That appeared to refute testimony DeLuca gave earlier this week, in which she said Bacanovic discussed with her a plan to sell Stewart's ImClone shares when they fell to $61 or $60.

Prosecutors have suggested Bacanovic was talking about ImClone shares that Stewart held in a company pension account — not her personal shares.

Prosecutors also called back to the stand their ink expert, Larry Stewart of the U.S. Secret Service, to testify about ink testing methods.

Larry Stewart, no relation to Martha Stewart, claims the defense used an unreliable machine to test the ink on a worksheet Bacanovic prepared. The sheet, for Martha Stewart's portfolio, contains the notation "(at)60" next to a listing for her ImClone stock.

One of the charges in the case is that Bacanovic doctored the worksheet. The ink used for the "(at)60" mark is different from some other inks Bacanovic used to make notes on the page.

Cedarbaum has yet to rule on motions from both defendants urging her to dismiss the charges. She has indicated it is unlikely she will throw out all charges.

The judge has focused some of her attention in court on whether she should dismiss the securities fraud charge against Stewart. That count, which carries more prison time than any other in the case, accuses Stewart of deceiving investors in her own company, Martha Stewart Living Omnimedia (MSO) , by claiming in 2002 that she sold ImClone stock because of the $60 agreement.